Casey Wagner

The California Fair Political Practices Commission has revised its policies to provide details on the acceptance of cryptocurrency donations by campaigns.



The Commission’s updated disclosure manuals clarify that candidates and committees in California can only accept cryptocurrencies through US-based payments processors that follow know-your-customer (KYC) policies and regulations set by the Treasury and Financial Crimes Enforcement Network. 



California’s policies state that all crypto contributions must be immediately converted into US dollars and that foreign entities, lobbyists and anonymous donors are not allowed to donate in cryptocurrencies. 



Committees are required to accept cryptocurrencies solely through platforms that gather and report the name, address, employer and occupation of donors within 24 hours. Under the <a href="https://www.fppc.ca.gov/content/dam/fppc/NS-Documents/AgendaDocuments/General%20Items/2023/august/4a-Campaign%20Disclosure%20Manual%201%20Aug%202023.pdf">guidelines</a>, California classifies crypto contributions as “non monetary” donations. 



California first gave the greenlight for cryptocurrency campaign contributions in July 2022 after the state had elected to ban the practice in 2018. The Commission is scheduled to discuss the updated manual at its next meeting on Aug. 17, according to the public <a href="https://www.fppc.ca.gov/content/dam/fppc/NS-Documents/AgendaDocuments/Agendas/2023/00_AUGUST_Agenda.pdf">agenda</a>.



The updated crypto contribution policies in California come shortly after the Minnesota Campaign Finance &amp; Public Disclosure Board voted last month to officially allow candidates to accept cryptocurrency contributions. Under Minnesota’s policy, candidates and committees must convert the crypto into US dollars within five days.&nbsp;



States including Arizona, Colorado, Iowa, Ohio, Tennessee and Washington also have policies allowing for cryptocurrencies campaign donations. States that have explicitly banned the practice, generally over concerns that crypto enables campaigns to conceal funding, include North Carolina and Oregon. 



On a national level, the Federal Election Committee allows committees and candidates to accept <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> contributions. Committees are allowed to hold the crypto in a wallet, but must return any contributions that come from a prohibited source, exceed the contribution limit or are otherwise illegal, the FEC <a href="https://www.fec.gov/help-candidates-and-committees/filing-reports/bitcoin-contributions/">said</a>. 



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California

California releases updated cryptocurrency campaign donation policies

James Cirrone

San Jose Deputy City Manager Rob Lloyd said Thursday he envisions a future where blockchain technology is used to vote in city, state and even federal elections.&nbsp;



“The 40-hour workweek, worker rights, [worker’s] comp protections — those usually start at the local level and then work their way up to state and get adopted by federal — I think the same pattern is going to happen with blockchain-driven voting,” Lloyd said.&nbsp;



He added that zero knowledge proof technology could be used to ensure voter anonymity, while also guaranteeing that their vote is forever recorded on an immutable digital ledger.


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><a href="https://www.linkedin.com/in/roblloyd/"><img loading="lazy" decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg" alt="" class="wp-image-54551" width="200" height="200" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg?w=400 400w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/rob-loyd.jpeg?w=80 80w" sizes="auto, (max-width: 200px) 100vw, 200px" /></a><figcaption class="wp-element-caption">Source: <a href="https://www.linkedin.com/in/roblloyd/" target="_blank" rel="noreferrer noopener">LinkedIn</a></figcaption></figure></div>


Lloyd’s comments were captured on a Web3-focused <a href="https://open.spotify.com/episode/1WaCG5F1YCZ7pibHTY5bjw?si=V1mwOkmKSASgW8bRNC940g&amp;nd=1">podcast</a> called “On Chain On Air,” which was hosted by Ashley Spradlin, head of education at Metis, an Ethereum layer-2 <a href="https://blockworks.co/tag/rollups" target="_blank" rel="noreferrer noopener">rollup</a>. This latest podcast featured Lloyd and University of San Francisco Professor Jonathan Reichental, both of whom are based in and around Silicon Valley. 



Reichental, who also advises governments about new technology through his firm Human Future, acknowledged the potential of blockchain-based voting. However, there’s one big problem, he said.



“The reality is we&#8217;re moving further away from electronic voting,” Reichental said. “The challenges that have occurred, or the appearance of challenges, has given people hesitancy around electronic voting.”



“People aren&#8217;t ready for it, and people are not going to accept it in the short term,” he added.



A July 2022 CNN poll found that Americans’ trust in elections has <a href="https://www.cnn.com/2022/07/21/politics/cnn-poll-elections/index.html" target="_blank" rel="noreferrer noopener">eroded</a> over time. Shortly after the January 6th attack on the Capitol, 36% of people were “very confident” that elections were representative of voters’ wishes. A year and a half later, just 16% were very confident.



The public trust dilemma exists with blockchain technology as well. While built to create <a href="https://blockworks.co/newsletter/issue/29722677" target="_blank" rel="noreferrer noopener">decentralized trust</a> systems, the myriad human failures behind crypto-adjacent centralized players over the past year have resulted in flagging public perception: <a href="https://blockworks.co/tag/voyager" target="_blank" rel="noreferrer noopener">Voyager</a>, <a href="https://blockworks.co/tag/celsius" target="_blank" rel="noreferrer noopener">Celsius</a>, <a href="https://blockworks.co/tag/blockfi" target="_blank" rel="noreferrer noopener">BlockFi</a>, and <a href="https://blockworks.co/tag/ftx" target="_blank" rel="noreferrer noopener">FTX</a> are just a few examples.&nbsp;



But Reichental said that falsely conflating crypto speculation with and blockchain technology holds back potential breakthroughs.



“We have to be really clear that these are two separate items. Blockchain is the technology, the platform. Crypto is an application that runs on top of blockchain.”



Lloyd pointed to one such use of blockchain technology that has absolutely nothing to do with crypto as a form of money: Marriage.



Utah County, Utah has opted for digital marriage certificates, where couples can choose to have a record of their legal union <a href="https://www.utahcounty.gov/dept/clerk/marriage/digitalvspapercertcopy.html" target="_blank" rel="noreferrer noopener">stored</a> on public Ethereum. Additionally, Americans from any state or locality can get married online through Utah County.&nbsp;



“Utah, of all places, took the leadership position…and they said we&#8217;re going to allow digital marriages and they&#8217;ve actually been unlocking use cases for blockchain more than any other state that I&#8217;ve seen,” Lloyd said.



The state’s service provider is using Ethereum because it is “a hundred times more reinforced than any redundant backup system ever devised,” according to its <a href="https://titanseal.com/faq" target="_blank" rel="noreferrer noopener">FAQ</a>.



<h2 class="wp-block-heading">Identity management</h2>



Another potential use case for blockchain technology to conduct government business is, what Reichental referred to as, “self sovereign identity” or SSI.



“[With] SSI identity management, we don&#8217;t ever have to get concerned with crypto and yet, we&#8217;re using the very best of blockchain technology,” Reichental said. “We can get authenticated without the recipient knowing personal information about us.”



Currently, to access most government services, you have to log in to multiple sites and remember all your login credentials. With a digital identity solution in place, Reichental said dealing with bureaucracy would be easier because the government would simply be able to authenticate you through whichever blockchain it decided to use.&nbsp;



Reichental also offered up a hypothetical situation where a person gets pulled over by a police officer. As it stands now, to verify who you are, a cop will take your driver’s license back to their vehicle.



In that situation, “you&#8217;ve lost control of your identity,” he explained. And in our society, you’re forced to hand over identifying documents to people all the time.&nbsp;



“In a properly implemented SSI environment, the cop can take a barcode or QR code, and he or she never sees the information, authenticates against this blockchain environment that&#8217;s being used, comes back and says, ‘yes, this person is who they say they are,’” Reichental said.



Digital marriages, SSI, electronic voting and paperless records could be the future, but according to Lloyd, who is actually responsible for administering government services, three criteria need to be met before blockchain technology can gain widespread civic adoption.



It needs to be stable, first and foremost. Second, vendor platforms need to begin adopting crypto as a form of payment. And finally, there needs to be a <a href="https://blockworks.co/tag/regulation" target="_blank" rel="noreferrer noopener">regulatory</a> framework, he said.&nbsp;



“When we see those three things, then we&#8217;ll know that the industry is at a point where we can really drive hard at it because we&#8217;ll have the basics on which we can create programs and maintain them and sustain them over time,” Lloyd said.



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blockchain

How Blockchain Can Make Government Work Better For Citizens

Ben Strack

A California state representative has floated a law that seeks to attract DAOs by fixing what one industry executive called the “fatal flaws” of existing laws looking to do the same.&nbsp;&nbsp;



DAOs operating without a legal entity structure may be unable to contract with third parties, open bank accounts and pay taxes, according to a bill summary <a href="https://twitter.com/MattHaneySF/status/1650580890177925121/photo/1">tweeted</a> by Assemblyman Matt Haney Monday.&nbsp;



The proposed bill would create a category within California’s existing Unincorporated Nonprofit Association (UNA) statutes for DAOs.



“Many legal entity structures are fundamentally incompatible with DAOs, primarily because they are predicated on concepts of centralized management and member ownership,” the memo states.



State laws focused on DAOs <a href="https://blockworks.co/news/daos-favor-classic-tax-havens-passing-up-crypto-friendly-us-states">already exist</a>.



Laws in Wyoming and Vermont, for example, essentially redefine DAOs as a type of limited liability company (LLC). A bill in <a href="https://blockworks.co/news/utah-law-on-chain-credentials-daos">Utah</a>, signed into law last month, uses the Coalition of Automated Legal Applications (COALA) <a href="https://coala.global/wp-content/uploads/2022/03/DAO-Model-Law.pdf">model</a> to recognize limited liability for DAO members that meet certain criteria.&nbsp;



Miles Jennings, general counsel of a16z crypto, a venture capital firm that helped draft the bill, called the California bill “a significant improvement” to such existing laws, noting that it “stays within the general constructs applicable to entity forms across the US.”



“The legitimate criticism directed at existing DAO laws stems from the fact that those laws are based on the LLC entity form in those jurisdictions,” Jennings told Blockworks.



Such laws do not work with many DAOs for two reasons, he added.&nbsp;



Membership interests in LLCs — representing a member’s ownership stake in the company — have historically been regulated as securities, Jennings said. This could make the governance token of a DAO that classifies itself as an LLC more likely to be deemed a security.&nbsp;



The SEC’s years-long lawsuit with Ripple Labs about whether XRP is a security <a href="https://blockworks.co/news/sec-court-win-weakens-ripple-argument">is ongoing</a>. The regulator has <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">more recently gone after Coinbase</a> via a Wells notice related to alleged securities violations.&nbsp;



“Second, LLCs are subject to the Corporate Transparency Act (CTA), which would require a DAO using such entity form to have the ability to identify its members,” Jennings added. “This typically isn’t possible with DAOs, which are largely anonymous.”&nbsp;



A representative for Haney’s office said a challenge for the bill is that many lawmakers do not know the ins and outs of blockchain technology or DAOs.&nbsp;



“One of the things requested from colleagues is more time for them to understand this,” the spokesperson told Blockworks. “The good news is we’ve found…when we take the time and people start to digest and understand the issue, they without a doubt understand the need for this.”



The bill is headed to the California Assembly’s Judiciary Committee, which would have to give the go-ahead before an assembly floor vote. It would then move on to the state senate and ultimately to the governor — a process that, if passed, could be complete by September, Haney’s representative said.&nbsp;&nbsp;&nbsp;&nbsp;



Despite the proposed California’s bill improvements upon existing DAO laws, Jennings said, it won’t meet every wish of the Web3 community.&nbsp;



“But those wishes are often unrealistic, and would necessitate totally new legal entities with special privileges that aren’t found in existing entity forms,” he said. “That would be highly unusual, as there isn’t a single other industry that has its own special entity form.”&nbsp;



The proposal comes several days after Delphi Labs criticized DAO-specific laws in a <a href="https://delphilabs.medium.com/assimilating-the-borg-a-new-cryptolegal-framework-for-dao-adjacent-entities-569e54a43f83">blog</a> post last week, noting that such laws are “overly prescriptive or opinionated about how such DAOs should work,” and discourage autonomy of these organizations.



The company said moving certain business activities to “DAO-adjacent” <a href="https://blockworks.co/news/daos-borgs-difference">Cybernetic Organizations, or BORGs,</a> would provide a more compelling way to solve these issues than DAO-specific laws.&nbsp;



Delphi Labs did not return a request for comment on the latest California proposal.



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California DAO Bill Would Fix Existing Laws’ ‘Fatal Flaws,’ a16z Exec Says

Shalini Nagarajan

In the first crypto-related US Supreme Court appearance, justices appear split over whether to freeze Coinbase customer lawsuits while the exchange awaits appeals decisions.



Coinbase is trying to push two lawsuits into arbitration, seeking Supreme Court intervention after lower courts allowed the cases to proceed.



While Coinbase is separately dealing with a <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation" target="_blank" rel="noreferrer noopener">legal threat</a> from the Securities and Exchange Commission over some of its products, the cases before the Supreme Court have more to do with legal procedure than with digital assets themselves.&nbsp;



<a href="https://www.govinfo.gov/content/pkg/USCOURTS-cand-3_21-cv-07478/pdf/USCOURTS-cand-3_21-cv-07478-0.pdf" target="_blank" rel="noreferrer noopener">One</a> was brought forward by a California-based plaintiff who argues a scammer pretending to be a PayPal representative scored remote access to his Coinbase account.&nbsp;



Their digital wallet was said to have been eventually drained of more than $31,000, after which they encountered a “customer-service nightmare.” The victim tried to use Coinbase’s live chat to seek help, but they said they were consistently met with a bot providing futile responses.&nbsp;



The plaintiff later sued Coinbase for violations against the Electronic Funds Transfer Act by not reimbursing him for the loss.



A second case was brought by Coinbase users who claimed the firm violated California’s False Advertising Law by allegedly duping them into a pay-to-play sweepstakes for Dogecoin prizes in 2021.



Coinbase’s user agreement, like some <a href="https://www.ibanet.org/stop-scrolling-read-Ts-Cs-arbitration-agreements-in-crypto-disputes" target="_blank" rel="noreferrer noopener">other</a> crypto firms, requires disputes to be resolved by arbitration. Arbitration is primarily a faster and cheaper route than court litigation, which can carry the burden of heavy damages and higher legal fees.&nbsp;



But plaintiffs in both lawsuits bypassed Coinbase’s user agreement and went straight to California courts, which agreed to hear the disputes.



Coinbase immediately requested the court of appeals to block the litigations from moving ahead until a ruling on the matter is finalized.



So, is it right for these cases to proceed before the appellate court’s ruling? Even top court officials aren’t sure. 



<h2 class="wp-block-heading">Coinbase Supreme Court ruling could impact big tech</h2>



Six circuit courts maintain that appeals should result in mandatory stays, but three others, including the Ninth US Circuit Court of Appeals, refused requests to put further litigation on hold.



During arguments, justices shared divided opinions over Coinbase’s wrangling. Others showed they were concerned about the consequences of companies looking to arbitrate customer lawsuits, as this technique generally favors the company over users.



Justice Brett Kavanaugh reportedly questioned the downside for Coinbase — and other companies in the same position — if litigation were permitted to continue before a decision on arbitration could be made.



Kavanaugh pointed out that Coinbase could be forced into “massive settlements” without the appellate court deciding on whether arbitration is the “appropriate forum,” <a href="https://www.law.com/2023/03/21/justices-appear-divided-in-crypto-arbitration-dispute/?slreturn=20230222164131" target="_blank" rel="noreferrer noopener">Law.com</a> reported.



Justice Ketanji Brown Jackson indicated she didn’t agree with Kavanaugh’s position, saying defendants given the ability to appeal aren’t really forced into settling. “That seems like a pretty significant arrow in their quiver to not settle because they’re about to go to the appeals court, and hopefully the appeals court will move quickly and resolve this in their favor,” she said.



Coinbase’s current situation is notable not only for crypto. The Supreme Court’s decision is relevant to tech companies that also use arbitration agreements when faced with lawsuits (Blockworks has reached out to Coinbase for comment).



Peter Rutledge, dean at the University of Georgia School of Law, reportedly said the court was “closely divided.” He expects most of the justices will eventually be in favor of a default mandatory stay order, which means judicial proceedings could be temporarily stopped.



A trial judge in the Dogecoin sweepstakes lawsuit decided to halt the case until the end of March, after Coinbase moved the Supreme Court to hear the case, <a href="https://www.reuters.com/legal/us-supreme-court-weighs-coinbase-arbitration-dispute-2023-03-21/" target="_blank" rel="noreferrer noopener">Reuters</a> reported.



The Supreme Court is expected to rule by June end.



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Coinbase Fronts Supreme Court Over User Lawsuits in Crypto First

A government agency in the most populous US state, California, is testing blockchain technology using a private fork of Tezos to execute some of its record keeping, including the issuance of car ownership and simplifying transfers of such ownership.



The CA Department of Motor Vehicles (DMV) is expected to develop consumer-facing applications such as digital wallets and car title NFTs later this year, according to Ajay Gupta, the agency’s chief digital transformation officer.



The state opted to team up with Tezos and crypto software provider Oxhead Alpha to embrace California’s <a href="https://www.govops.ca.gov/wp-content/uploads/sites/11/2020/07/BWG-Final-Report-2020-July1.pdf" target="_blank" rel="noreferrer noopener">roadmap</a> to explore crypto adoption, according to an Oxhead <a href="https://www.oxheadalpha.com/PR_20230125_DMV.html" target="_blank" rel="noreferrer noopener">statement</a>.



Oxhead Alpha has built a set of smart contracts on a version Tezos — but not the public permissionless chain — to test e-titles, enabling the electronic exchange of title information, in a move that could lessen processing time for documentation. California had over 30 million <a href="https://www.valuepenguin.com/auto-insurance/car-ownership-statistics#state-total" target="_blank" rel="noreferrer noopener">registered</a> vehicles as of 2020.



Gupta told <a href="https://fortune.com/crypto/2023/01/26/california-announces-dmv-run-blockchain-through-partnership-with-tezos/" target="_blank" rel="noreferrer noopener">Fortune</a> that he hopes the plans to materialize the title database on blockchain come to fruition in the next three months.



This collaboration comes after California Governor Gavin Newsom last year <a href="https://blockworks.co/news/california-unveils-crypto-executive-order-as-competition-for-us-crypto-capital-builds">signed an executive order</a> directing state agencies to discern ways in which they can employ blockchain technology and digital assets. 



The use of blockchain-based projects has evolved in use cases, pushing developers to build out more decentralized applications. Several governments and business entities have been pursuing its adoption in sectors including capital markets, healthcare, insurance and digital identities.



The pilot is the latest example of attempts to find technology solutions that benefit enterprises looking for smoother compliance and efficiency in their business operations. In another instance, a Cleveland-based startup called ChampTitles looking to overhaul the car title and registration systems using blockchain raised nearly <a href="https://www.crainscleveland.com/technology/cleveland-startup-champ-titles-raises-129-million-series-b-investment-round" target="_blank" rel="noreferrer noopener">$13 million</a> in a Series B round in September.



California has also listed its Department of Food and Agriculture for pioneering a similar project to track food-borne contamination through the collection and organization of data from parties involved like growers and transporters, and proposed moving state archives on a similar ledger.



The DMV-specific project itself is up and running with validator nodes, but is yet to cover broader services like title transfers between states.



This story was updated on Jan. 27, at 9:12 a.m. ET, to clarify that the pilot is not running on public Tezos.



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California Pilots Blockchain Car Title Management System on Tezos Fork

The California Department of Financial Protection and Innovation (DFPI) has issued fraud alerts about phony entities posing as decentralized exchange Uniswap and crypto market maker Wintermute.



The alerts came alongside posts for 14 other registered entities apparently peddling crypto-themed Advance Fee scams.



In one instance, the victim <a href="https://dfpi.ca.gov/2022/12/27/cryptocurrency-broker-uniswap-llc-appears-to-be-engaged-in-fraud-against-california-consumers/" target="_blank" rel="noreferrer noopener">claimed</a> a &#8220;UniSwap LLC&#8221; lured them into investing $14,000 in what was presented as a Uniswap liquidity mining venture.



Per DFPI: “The victim met a person calling themselves &#8216;Heitor Ryan&#8217; on the internet who claimed to work at a bank. They chatted as friends for several months, then Heitor lured the victim into investing on a crypto website that turned out to be a fraud.”



Another victim in a <a href="https://dfpi.ca.gov/2022/12/27/cryptocurrency-website-eth-wintermute-net-appears-to-be-engaged-in-fraud-against-california-consumers/" target="_blank" rel="noreferrer noopener">separate</a> scam was convinced to send more than $167,000 to who they believe was crypto trading outfit Wintermute.



“The victim met someone calling herself ‘Rosalie’ on WhatsApp, who introduced him to eth-Wintermute dot net, telling the victim this would generate dividends on liquidity pools every six hours based on the amount of money put into the MetaMask app wallet,” DFPI wrote (Blockworks advises caution when interacting with the quoted domain).



Phishers and other bad actors commonly spoof popular crypto platforms to <a href="https://blockworks.co/news/crypto-trading-bot-platform-3commas-rocked-by-critical-api-leak" target="_blank" rel="noreferrer noopener">target digital asset investors</a>. Users are advised to always triple check the domains they interact with. 



But 2022 will perhaps go down as the biggest year of crypto-related frauds in history so far, thanks in no small part to the Sam Bankman-Fried case.



Between January to November, investors lost more than $4 billion worth of crypto — a 37% jump from last year, according to a <a href="https://www.privacyaffairs.com/cryptocurrency-scams-2022/">study</a> by Privacy Affairs.



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Fake Uniswap, Wintermute Reps Con Californian Crypto Curious

Ornella Hernandez

<div id="highlights-block_63594d397f388" class="highlights">
 <ul>
 <li>The case fuels debate over whether US tech companies should turn over data held on systems outside the country</li>
 <li>A compliance monitor will ensure Google fulfills its legal obligations</li>
 </ul>
 
</div>



The US Department of Justice and Alphabet Inc.’s Google <a href="https://www.justice.gov/opa/pr/google-enters-stipulated-agreement-improve-legal-process-compliance-program" target="_blank" rel="noreferrer noopener">filed</a> a joint stipulated agreement on Tuesday to close a dispute ongoing since 2016 in California federal court.



US District Judge Richard Seeborg signed the resolution in which Google admitted to a loss of data in response to a 2016 search warrant. The government agency sought data related to a criminal probe into the cryptocurrency exchange BTC-e.



Under the agreement, Google must reform and upgrade the compliance program that handles responses to legal demands such as subpoenas and search warrants.



Google has reportedly already spent over $90 million on additional resources, systems and staffing to improve its legal process compliance program, as stated in the press release.



The tech giant will also be required to bring on an independent compliance professional, serving as an outside third party, to assess Google’s adherence to the agreement and verify the accuracy of its update reports. These reports must be submitted to the government, the Google Compliance Steering Committee and the Audit and Compliance Committee of the Alphabet Board of Directors.



“The warrant underlying this agreement was sought in connection with a significant criminal investigation,” said US Attorney Stephanie Hinds for the Northern District of California, referring to a now defunct BTC-e.



The exchange has been shut down since July 2017, after the arrest of key staff members who were charged with being involved in money laundering schemes. <a href="https://cms.blockworks.co/tag/alexander-Vinnik/" target="_blank" rel="noreferrer noopener">Alexander Vinnik</a>, the alleged Russian operator of BTC-e, was sentenced to a five-year prison term by a Parisian court in June 2021. 



“This agreement will help to ensure that, moving forward, Google will maintain the technical capability and resources necessary to comply with lawful warrants and orders, such as the one at issue in this case, that are critical to federal criminal investigations,” Hinds added.



<h3 class="wp-block-heading">A Big Tech dilemma</h3>



The warrant was issued under the Stored Communication Act (SCA) statute that requires tech companies such as Google to disclose customer communications if there is probable cause.



The DOJ claimed that Google failed to turn over data stored outside the United States.



However, when the US Court of Appeals for the Second Circuit ruled in 2017 that foreign-held data couldn’t be reached under the SCA, Google only provided information stored in the United States, according to the DOJ.&nbsp;



The legal battle over the warrant between Google and the government carried into 2018, when Congress clarified the SCA did in fact require US providers to report any data stored abroad.



The Department of Justice said that “in the intervening time, data responsive to the warrant was lost.”



The press release noted that this agreement does not provide the US government with access to Google user data.



Even as Google’s compliance costs are on the rise, its ad revenue has gone the other way, <a href="https://cms.blockworks.co/google-summer-ad-business-falls-after-crypto-winter/" target="_blank" rel="noreferrer noopener">dropping 2% to $7.1 billion in the last quarter</a> as advertisers slashed budgets.



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Alphabet

Google Agrees To Boost Compliance Program in DOJ Legal Battle

<div id="highlights-block_6331f9ac546b0" class="highlights">
 <ul>
 <li>More than 18,000 California residents had Nexo interest accounts as of July 31, the California regulator alleges</li>
 <li>DFPI has issued similar actions against BlockFi, Voyager Digital and Celsius Network</li>
 </ul>
 
</div>



California’s Department of Financial Protection and Innovation (DFPI) has filed a desist and refrain action against crypto platform Nexo for allegedly offering interest accounts to the state’s residents without qualifying them as securities.



Nexo has offered annual interest rates of up to 36% on investors’ deposited cryptoassets, DFPI said in the <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/09/D-R-Nexo-Group.pdf" target="_blank" rel="noreferrer noopener">order</a>, filed Monday.



“These crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved,” DFPI Commissioner Clothilde Hewlett said in a statement.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Collectively, these actions protect investors while ensuring that California remains an ideal setting for responsible financial innovation,” she said.&nbsp;</blockquote>



State securities regulators of <a href="https://ag.ny.gov/sites/default/files/2022.09.26_nexo_complaint_final.pdf">New York</a>, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont also filed administrative actions against Nexo Monday.



BlockFi agreed in February <a href="https://www.sec.gov/news/press-release/2022-26" target="_blank" rel="noreferrer noopener">to pay $100 million in penalties</a> to the SEC and other state regulators after its lending product was deemed a security. A Nexo spokesperson told Blockworks that since the SEC’s guidance on earn products that month, the company has voluntarily halted US client onboarding for its interest-earning products and stopped existing clients from adding to the accounts.



“We have been working with US federal and state regulators and understand their urge, given the current market turmoil and bankruptcies of companies offering similar products, to fulfill their mandates of investor protection by examining past behavior of providers of earn interest products,” the representative said. “Nexo is committed to finding a clear path forward for the regulated provision of products and services in the US, ideally on a federal level.”



Though Nexo said that it stopped offering these accounts to US residents in February, DFPI claims in the order that such customers have continued using them through Nexo’s automatic renewal feature.



The document claims that, as of July 31, more than 18,000 California residents had these Nexo accounts. Investments in the accounts total at least $175 million, it states.



The DFPI licenses and regulates financial services, including state-chartered banks, credit unions, money transmitters, securities broker-dealers and investment advisors.&nbsp;



The order against Nexo comes after DFPI <a href="https://dfpi.ca.gov/2022/07/12/dfpi-is-actively-investigating-multiple-companies-offering-crypto-interest-accounts/" target="_blank" rel="noreferrer noopener">said in July</a> that it would investigate whether companies offering interest-bearing cryptoasset accounts were violating laws under the department’s jurisdiction.&nbsp;



DFPI has issued similar actions against <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/02/Consent-Order-BlockFi-Lending-LLC.pdf" target="_blank" rel="noreferrer noopener">BlockFi</a>, <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/06/D-R-Voyager-Digital-LLC.pdf" target="_blank" rel="noreferrer noopener">Voyager Digital</a> and <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/08/D-R-Celsius-Network-Inc.pdf" target="_blank" rel="noreferrer noopener">Celsius Network</a> earlier this year. While BlockFi was hit with fines, <a href="https://cms.blockworks.co/voyager-files-for-bankruptcy-days-after-freezing-withdrawals/" target="_blank" rel="noreferrer noopener">Voyager Digital</a> and <a href="https://cms.blockworks.co/celsius-to-file-for-bankruptcy-imminently-report/" target="_blank" rel="noreferrer noopener">Celsius</a> filed for bankruptcy in July.



The legal action also follows <a href="https://cms.blockworks.co/california-governor-vetoes-crypto-bill/" target="_blank" rel="noreferrer noopener">California Gov. Gavin Newsom vetoing a bill</a> that would have made crypto companies get a license before offering services or digital assets to the state’s residents.



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California Regulator Files Desist and Refrain Order Against Nexo

Sebastian Sinclair

<div id="highlights-block_63315fa8f3c36" class="highlights">
 <ul>
 <li>California’s governor has refused to sign a digital assets bill that sought greater regulatory clarity</li>
 <li>Initially decreed by the governor via executive order, the bill would have established a licensing regime similar to those overseas</li>
 </ul>
 
</div>



California’s governor has vetoed a bill — born out of an executive order he issued in May — that sought to establish a licensing and regulatory framework for digital assets.



The bill would have tasked crypto companies with seeking a license to offer their services or digital assets to the state’s residents.&nbsp;



It would have also formally adopted new rules governing stablecoins, including requirements that licensed companies only engage with bank-issued stablecoins, which must remain 100% backed by reserves.



Governor Gavin Newsom said his reasoning was due to the bill’s “premature” nature to lock in a licensing regime under Assembly Bill 2269 without first considering prior research and forthcoming federal actions.



At least four <a href="https://cms.blockworks.co/us-regulators-release-first-of-many-reports-on-crypto-following-exec-order/" target="_blank" rel="noreferrer noopener">US watchdogs</a> — the Secretary of the Treasury, the Secretary of State, the Secretary of Commerce and the Agency for International Development — as well as “other relevant agencies” participated in one of many reports on digital asset regulation in July.



The report included the usual well-worn arguments from government officials, including the need to regulate stablecoins following Terra’s collapse, as well as the potential for criminal use and financial instability resulting from the new asset class.



“A more flexible approach is needed to ensure regulatory oversight can keep up with rapidly evolving technology and use cases and is tailored with the proper tools to address trends and mitigate consumer harm,” the governor said in a <a href="https://www.gov.ca.gov/wp-content/uploads/2022/09/AB-2269-VETO.pdf?emrc=bb881d" target="_blank" rel="noreferrer noopener">statement</a> addressed to members of the California State Assembly.



Newsom also said that presenting a new regulatory program was a costly undertaking which, as the governor stated, would require a loan from the state’s general fund exceeding tens of millions of dollars during the bill’s initial implementation.



“Such a significant commitment of general fund resources should be considered and accounted for in the annual budget process,” the governor said.



Crypto proponents across California and the US have been asking for clearer guidelines on digital assets since at least 2015 shortly following the <a href="https://web3caff.com/archives/15720" target="_blank" rel="noreferrer noopener">birth of Ethereum</a>. Several boom and bust cycles throughout crypto’s short history have also prompted <a href="https://cms.blockworks.co/eu-members-reach-agreement-on-mica/" target="_blank" rel="noreferrer noopener">regulators to act</a>.&nbsp;



The governor said that while he had refused to sign the bill into law, he would work “collaboratively” with California’s legislature to achieve regulatory clarity only after federal regulators had metered out their own stance toward the new asset class.



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California Governor Newsom Vetoes Crypto Bill

<div id="highlights-block_62de12a0846f0" class="highlights">
 <ul>
 <li>The state of California has overturned a near four-year ban against political crypto donations</li>
 <li>Crypto contributions will need to be verified via a name, address and other revealing details</li>
 </ul>
 
</div>



California&#8217;s political campaign financing watchdog approved measures Thursday allowing state and local offices the right to raise funds using crypto once more.



<a href="https://www.fppc.ca.gov/content/dam/fppc/NS-Documents/LegalDiv/Regulations/Index/Chapter2/18215.4%20Cryptocurrency%20Contributions.pdf" target="_blank" rel="noreferrer noopener">Previous regulation</a> had denied political campaigners the right to raise or receive funds via crypto. The ruling was <a href="https://www.fppc.ca.gov/content/dam/fppc/NS-Documents/LegalDiv/Regulations/ProposedRegs/18215.4ada.pdf" target="_blank" rel="noreferrer noopener">repealed</a> in late May. 



Thanks to a recent vote by California&#8217;s Fair Political Practices Commission (FPPC), those running for office may now receive funding in the nascent asset class — provided it&#8217;s converted to fiat immediately.



The FPPC&#8217;s motion on &#8220;Regulation 18421.2 Cryptocurrency Contributions,&#8221; put forth last month, reverses a ban implemented during crypto&#8217;s prior bear market in November 2018. 



An unrelated <a href="https://www.ncsl.org/Portals/1/Documents/Elections/Contribution_Limits_to_Candidates_2020_2021.pdf" target="_blank" rel="noreferrer noopener">financial limit</a> on campaign contributions remains in place for California, which now joins 12 other states and the District of Colombia in approving crypto donations.



Concerns over how crypto could interfere with campaign transparency led the FPPC to deny its use for political campaigns, though the digital asset industry has since matured significantly since the almost four-year ban.



&#8220;In drafting this legislation, we had to address the inherent concerns with cryptocurrency and the opportunity it presents for illegal contributions,&#8221; FPPC&#8217;s general counsel David Bainbridge said in a live-streamed <a href="https://www.youtube.com/watch?v=0RrKHvIh0W8&amp;t=8321s&amp;ab_channel=CAFPPC" target="_blank" rel="noreferrer noopener">commission meeting</a> on Thursday.



Political donations made using crypto must be conducted via a US-based crypto payments processor or &#8220;other service&#8221; with strict know-your-customer measures and answerable to subpoena requests for records.



Anonymous donations in crypto to political committees will be barred and those individuals contributing will be subject to identification constraints including the collection of names, addresses, occupations, and employers of each contributor at the time the donation is made.



&#8220;The campaign committee is responsible for all reporting,&#8221; an FPPC spokesperson told Blockworks in an email when asked if politicians and political candidates would need to obtain the identification of the donor. &#8220;It would still be required to have the name of the donor who contributed in crypto.&#8221;



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California Overturns Ban on Political Crypto Donations

<div id="highlights-block_62b224e8b5c6c" class="highlights">
 <ul>
 <li>FalconX CEO Raghu Yarlagadda says bear markets are the best time to build up a business</li>
 <li>The company had raised $210 million at a $3.75 billion valuation last August</li>
 </ul>
 
</div>



Crypto platform FalconX has raised $150 million in a Series D funding round that has more than doubled its valuation in under a year — defying the current crypto bear market.&nbsp;



The California-based company is now valued at $8 billion, up from $3.75 billion following its $210 million <a href="https://cms.blockworks.co/falconx-coindcx-hit-unicorn-status-amid-uncertain-regulatory-environment/" target="_blank" rel="noreferrer noopener">Series C raise</a> in August 2021.



“The investment will allow us to further accelerate growth by looking at [merger and acquisition] opportunities that add strategic value to our existing core offerings,” FalconX CEO Raghu Yarlagadda told Blockworks. “We’ll continue to expand our product offering, doubling down on our market-leading reliable infrastructure and enabling new markets for our institutional customers.”



Launched in 2018, FalconX allows institutions to manage their crypto strategies through a single interface to execute trading, credit and clearing. Its crypto-as-a-service offering allows banks, fintech firms and investment applications to add digital assets to their products.



Yarlagadda added in a statement that his company is one of the few crypto prime brokerages that does not take on market risk — meaning that FalconX is not in conflict with its clients and their trading strategies.



“In light of recent market conditions, this is extremely valuable to our clients who demand a reliable market infrastructure provider,” he said.



Singaporean sovereign wealth fund GIC and B Capital Group, which has <a href="https://www.bcapgroup.com/bcapital-bcg/" target="_blank" rel="noreferrer noopener">a strategic partnership</a> with Boston Consulting Group, led FalconX’s latest fundraising round. Other participants were Thoma Bravo, Wellington Management, Adams Street and Tiger Global Management.



“As a tech-first digital asset infrastructure platform, FalconX provides a holistic product offering paired with unparalleled execution that supports over 70 million transactions on a monthly basis,” B Capital Group General Partner Rashmi Gopinath said in a Wednesday statement. “They are well-positioned to lead the ongoing institutional transition to digital assets for years to come.”



The new funding comes as crypto prices have dropped significantly in recent weeks. Bitcoin’s price was roughly $20,400 early Wednesday morning, according to data compiled by Blockworks — down 32% from a month ago. Cryptocurrency’s collective market value has fallen 30% in that time.



But despite the drawdown, which has led crypto firms such as <a href="https://cms.blockworks.co/gemini-joins-growing-list-of-crypto-exchanges-cutting-staff-amid-downturn/" target="_blank" rel="noreferrer noopener">Gemini</a>, <a href="https://cms.blockworks.co/coinbase-latest-crypto-firm-to-cut-costs-amid-market-downturn/" target="_blank" rel="noreferrer noopener">Coinbase</a> and <a href="https://cms.blockworks.co/crypto-com-cutting-5-of-workforce-amid-digital-asset-downturn/" target="_blank" rel="noreferrer noopener">Crypto.com</a> to pause or slow hiring efforts, FalconX plans to continue adding employees.



<a href="https://www.linkedin.com/careersite/falconx" target="_blank" rel="noreferrer noopener">Open roles</a> include product managers, engineers, analysts, traders and a director of people for the Americas and Europe.&nbsp;



Yarlagadda told Blockworks that bear markets are the best time to build a business.&nbsp;



“With each market downturn, we have emerged significantly stronger by doubling down on product and talent,” he said. “In this broader market downturn, we continue to see A-plus talent excited about crypto, and we’re excited by the prospect of having more talented team members join us.”&nbsp;



The firm hired former Carta chief people officer and Bloomberg head of talent Suzy Walther as its head of people in February amid a push to fill hundreds of roles across engineering, marketing, human resources and customer support.



FalconX also brought aboard former Pinterest and Google executive Jon Kaplan as its head of revenue later that month.



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FalconX Valuation Doubles to $8B Despite Crypto Market Turmoil

<div id="highlights-block_6272ec027f842" class="highlights">
 <ul>
 <li>The governor’s latest executive order looks to create transparent regulation around digital assets</li>
 <li>The state is hoping to align itself with upcoming policy from the federal government</li>
 </ul>
 
</div>



The state known as a bastion of technology and an economy that dwarfs many a nation is warming up to digital assets — and the need to regulate them, specifically.&nbsp;



Gov. Gavin Newsom signed an executive order Wednesday aimed at establishing regulatory guidelines around the digital asset industry that protect investors while fostering innovation, Newsom’s office <a href="https://www.gov.ca.gov/2022/05/04/governor-newsom-signs-blockchain-executive-order-to-spur-responsible-web3-innovation-grow-jobs-and-protect-consumers/" target="_blank" rel="noreferrer noopener">said</a> in a statement.&nbsp;



“California is a global hub of innovation, and we’re setting up the state for success with this emerging technology – spurring responsible innovation, protecting consumers, and leveraging this technology for the public good,” Newsom said. “Too often government lags behind technological advancements, so we’re getting ahead of the curve on this, laying the foundation to allow for consumers and business to thrive.”



The executive order builds on <a href="https://cms.blockworks.co/whos-in-charge-of-what-breaking-down-the-crypto-executive-order/" target="_blank" rel="noreferrer noopener">President Biden’s recent moves</a> to bring regulatory clarity to the emerging asset class, according to Newsom, with the hopes of positioning California ahead of the curve in terms of looming federal policy.&nbsp;



Newsom’s gambit comes as mayors in New York and Miami are maneuvering to roll out crypto-friendly regulations that could establish their metropolitan areas as the US’ crypto hub.&nbsp;



Denelle Dixon, CEO of the Stellar Development Foundation, told Blockworks it’s a “huge win” to see California take blockchain rule-making seriously, especially when it comes to job creation.&nbsp;



“Best known as the home of Web2, the governor’s call today was a move toward a Web3 future,” Dixon said.&nbsp;



Under the executive order, California officials are tasked with soliciting feedback from industry participants, as well as the public, the statement said. Lawmakers are also set to consider how blockchain technology could be used to address public — and policy — needs.&nbsp;



<a href="https://cms.blockworks.co/new-york-bill-banning-proof-of-work-crypto-mining-poised-to-advance/" target="_blank" rel="noreferrer noopener">New York</a>, meanwhile, is considering a bill that could curtail proof-of-work mining, namely, bitcoin. <a href="https://cms.blockworks.co/illinois-moves-closer-to-accepting-crypto-for-taxes-but-not-considering-legal-tender-status/" target="_blank" rel="noreferrer noopener">Illinois lawmakers</a> have introduced a measure that would allow the department of revenue to accept crypto payments, while <a href="https://cms.blockworks.co/colorados-plans-to-accept-tax-payments-in-crypto-could-be-rocky-for-investors/" target="_blank" rel="noreferrer noopener">Colorado</a>’s governor pushes for cryptocurrency tax payments.&nbsp;&nbsp;



“Like many things in United States politics, crypto regulation trickles up from the states,” Ron Hammond, director of government affairs for the Blockchain Association, said. “A lot of battles we see happening at a state level do trickle up to the [federal level].”



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California Unveils Crypto Executive Order as Competition for US Crypto Capital Builds

<div id="highlights-block_6226759493553" class="highlights">
 <ul>
 <li>A bill has been introduced in the California legislature that could establish bitcoin as legal tender in the state</li>
 <li>It is not the first time a state has introduced such a measure, and a constitutional amendment might be needed before it is passed</li>
 </ul>
 
</div>



California bitcoiners are hoping to make the state the first to accept the cryptocurrency as legal tender, even if it means going up against the US Constitution.&nbsp;



“This is a bottom-up approach, just like bitcoin is a bottom-up approach,” said bitcoin advocate Dennis Porter, who is working to advance the bill. “The states have the final say over what is in the Constitution, and if we have to, we&#8217;ll go to an Article V and we&#8217;ll rewrite the Constitution.”



Republican State Rep. Jordan Cunningham introduced assembly <a href="https://fastdemocracy.com/bill-search/ca/20212022/bills/CAB00025753/" target="_blank" rel="noreferrer noopener">bill 2698</a> February 19. The bill has since been referred to committee.



The goal is to establish bitcoin as legal tender in the state, but the process is complicated, according to Ian Calderon, former California State Assembly majority leader and principal of political advocacy group Majority Advisors.



“What we are working through right now is that we have to be careful about how we say it, because it could be detrimental to list bitcoin or ethereum, or any other specific asset, because it&#8217;s important to leave flexibility for businesses and local governments that would accept cryptocurrency as payment,” Calderon said.



According to the Constitution, defining “legal tender” is not the domain of state lawmakers, said Preston Byrne, partner at law firm Anderson Kill.



“The move is largely symbolic,” Byrne said. “The coinage clause of the Constitution means that the power to determine what is and isn’t legal tender in the United States is the exclusive province of Congress.”



Some businesses in California and across the US currently accept bitcoin or other digital assets as a means of payment. Establishing a clear law is essential, though, Calderon said.



“I know of a county that wants to put in place a pilot program for virtual currencies, but their concern is that down the line, after they&#8217;ve put time, energy and resources into developing this pilot program, the state comes in and yanks the rug out from underneath and says ‘No, you can&#8217;t do this — this isn&#8217;t a legitimate,’” Calderon said.&nbsp;



Providing clarity will allow businesses and governments to work within regulatory guidelines, he added. The bill will also serve to clear up issues around taxing cryptocurrencies, Porter said, which may slow crypto adoption.



“It&#8217;s very important that we get to a place where the average person, someone who&#8217;s trying to pay for their groceries, someone who&#8217;s trying to pay for rent in digital assets can do so without a massive tax or accounting burden,” Porter said.



As the assembly bill was introduced, a similar bill was presented to the California Senate. Senate bill 1275, introduced by Democrat Sydney Kamlager, would allow California residents to pay for state services using cryptocurrencies. Calderon and his team support this bill as well.



“We&#8217;ve started working directly with [Kamlager], helping her craft her language for her bill as well, so that we could have two efforts in this space, one in the senate, one in the assembly, to try to increase our odds of getting something under the governor&#8217;s desk,” he added.



California is not the first state to consider making bitcoin legal tender. In January, Arizona State Sen. Wendy Rogers introduced a <a href="https://www.azleg.gov/legtext/55leg/2R/bills/SB1341P.pdf" target="_blank" rel="noreferrer noopener">bill</a> that would legalize bitcoin as legal tender in the state.



“At best this is an indication as to what state legislators are thinking, and tomorrow’s federal legislators are often found getting their foundational training in today’s state legislatures,”&nbsp; Byrne said.



The effort in California is about making a broader statement, Calderon agrees, but seeing the bill pass is still the goal.



“The introduction alone, and the legitimacy of it moving through a couple committees, maybe getting out of the assembly, going to the Senate…even if the governor vetoes it, this is huge,” he said. “People want certainty, they want consumer protection, they want to know what they can do and what they can&#8217;t do. This is a part of that effort.”



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